Am I being unreasonable to think this could be a solution?

Sasannach · 9 April 2015 at 10:27PM

I'm wanting to garner opinions as to whether I am being unreasonable to think that this could be a solution to our problems. I'll outline the problems (i.e. debt) first, and then the potential solution.

Between DH and I, we have £8,300 of debt between three different overdrafts and a credit card. This is all debt foolishly accrued whilst wedding planning. Having a baby scuppered plans to pay it back fast and now I am working part time this has made it even harder. We also have a car on a PCP, due to refinance in September and currently owe a total of £10,500 remaining.

We are buying our current house, and have approximately £45,000 equity on it. We have a small monthly mortgage and are managing minimum repayments on all our debts, but not enough to significantly clear them, though any extra cash we have gets fired towards them.

The plan was to sell our house, use £18,800 to pay off all remaining debts and use the rest of the equity as a deposit on a new house, but our credit scores had other ideas. Mine because I missed one payment on the credit card when DH was in hospital after having woken up blind one morning, and the other was a default that DH had no idea about until our credit scores were checked by IFA for mortgage purposes.

Would we therefore be unreasonable to consider selling up, using equity to pay off debt, and then rent for a couple of years whilst doing everything we can to rectify our credit scores?

:beer: if you've managed to get to the end of this post and I look forward to hearing what you all have to say about it!

merlin68 · 9 April 2015 at 10:34PM

Bad idea. You may never get back on the housing ladder and renting would cost a lot more and it would be oh so tempting to dip in to the equity that is left. My poor cousin has to move all the time, which costs a fortune in itself.
Easier to do a debt management plan.

andyfromotley · 10 April 2015 at 1:40AM

hi,

moving from home ownership to rented seems a big step over relatively small debts.

If its a pcp you don't have to refinance the car at all, could you not just hand it back and then get a cheap runabout? That could be a significant saving.

If so you are then left with £8.5k of debt which you should be able to tackle using the money from the car repayments, perhaps you could up your hours a little? Pay rises etc. With effort you could shift that fairly quickly.

Oh and make sure that you set up a DD to pay the minimum on your cards this should avoid any other missed payments.

If you post an SOA up here using this link
http://www.stoozing.com/calculator/soa.php
i bet posters would be able to find plant of other savings in your budget too, sometimes these can be quite significant. By getting rid of sky, changing my phone/internet and insurances i have saved well over £100 per month. A simple thing like changing your bank acc could net you £180! These saving soon add up and could help you crush your debt!!

Red-Squirrel_2 · 10 April 2015 at 8:42AM

I agree with the others that you'd probably end up regretting selling your home. Renting might free up equity, but month to month its usually more expensive, not to mention the lack of security, the hassle of moving regularly and the fact that your at the mercy of your landlord.

Agree with Andy, post the SOA, let us help you get cracking on paying it down without giving up your home

Since I found this part of the site, I've gone from only making minimum payments on my debts and still ending up overdrawn each month to paying loads off at 0% and still having money left in the budget for things like getting my hair done and having a holiday in August, on exactly the same income! You'll be amazed at how much difference a financial 'makeover' can make.

sourcrates · 10 April 2015 at 10:37AM

Hi,
Op, we did a similar thing in 2005, had a lot of debt, inc mortgage arrears, secured loan etc, our solution was to hand back the keys of the house to the mortgage company, and it was the worst decision of my life.

We never again had the credit worthyness, or the money, to buy our own property, it led to a breakdown in our relationship, and eventual separation, with divorce now looming.

Of course it was not the sole reason, but losing the house was a major factor in it.

LolStevo · 10 April 2015 at 12:44PM

If you post an SOA there are plenty of savvy people to help you out.

I personally think its a bad idea over what is a relatively small amount of debt! I have been renting for 6 years now and have had to move 5 times! Iv had endless problems and terrible uncaring landlords. It would be too easy to just dip into the equity and all of a sudden be gone!

Rent will also be a lot more than your mortgage as rent is rocketing up as so many people can just not get a mortgage!

My advice is post an SOA try and find some money to save to put towards the debts and bear with it for a couple of years until its cleared and you will be in an ideal situation!

Ps its absolutely crap that they will refuse or give poor mortgages based on a default! Im dreading the time i finally have my deposit together!

Sasannach · 10 April 2015 at 6:44PM

Thanks everyone. Looks like it was a bad idea then! Good to know these things, and get on with the next step. We were looking at moving and buying somewhere else, but the credit scores scuppered that idea!

So, here goes with the SOA:

Statement of Affairs and Personal Balance Sheet

Household Information
Number of adults in household........... 2
Number of children in household......... 1
Number of cars owned.................... 1

Monthly Income Details
Monthly income after tax................ 1850
Partners monthly income after tax....... 710
Benefits................................ 86
Other income............................ 0
Total monthly income.................... 2646

Monthly Expense Details
Mortgage................................ 300
Secured/HP loan repayments.............. 260.29999999999995
Rent.................................... 0
Management charge (leasehold property).. 0
Council tax............................. 144
Electricity............................. 40
Gas..................................... 90
Oil..................................... 0
Water rates............................. 0
Telephone (land line)................... 15
Mobile phone............................ 80
TV Licence.............................. 12.12
Satellite/Cable TV...................... 0
Internet Services....................... 15
Groceries etc. ......................... 400
Clothing................................ 40
Petrol/diesel........................... 80
Road tax................................ 3
Car Insurance........................... 40
Car maintenance (including MOT)......... 25
Car parking............................. 0
Other travel............................ 10
Childcare/nursery....................... 0
Other child related expenses............ 50
Medical (prescriptions, dentist etc).... 0
Pet insurance/vet bills................. 0
Buildings insurance..................... 20
Contents insurance...................... 20
Life assurance ......................... 0
Other insurance......................... 0
Presents (birthday, christmas etc)...... 50
Haircuts................................ 5
Entertainment........................... 50
Holiday................................. 100
Emergency fund.......................... 0
Netflix................................. 5.99
Tumble Drier Service Plan............... 3
National Trust.......................... 7.9
RCN..................................... 16.4
Boiler Service Plan..................... 17.9
Church.................................. 300
Total monthly expenses.................. 2200.61

Assets
Cash.................................... 0
House value (Gross)..................... 95000
Shares and bonds........................ 0
Car(s).................................. 13000
Other assets............................ 0
Total Assets............................ 108000

Secured & HP Debts
Description....................Debt......Monthly...APR
Mortgage...................... 51000....(300)......3.43
Hire Purchase (HP) debt ...... 10500....(260.3)....0
Total secured & HP debts...... 61500.....-.........-

Unsecured Debts
Description....................Debt......Monthly...APR
Overdraft......................2000......30........1.5
Overdraft......................2000......30........1.5
Overdraft......................1500......30........2
Credit Card....................2777.89...64........1.5
Total unsecured debts..........8277.89...154.......-

Monthly Budget Summary
Total monthly income.................... 2,646
Expenses (including HP & secured debts). 2,200.61
Available for debt repayments........... 445.39
Monthly UNsecured debt repayments....... 154
Amount left after debt repayments....... 291.39

Personal Balance Sheet Summary
Total assets (things you own)........... 108,000
Total HP & Secured debt................. -61,500
Total Unsecured debt.................... -8,277.89
Net Assets.............................. 38,222.11

Our mobile contracts are high, and are a result of foolish impulsivity when the iPhone 6 came out, so not a lot we can do about that now (I don't think?). The church money is non-negotiable tithing. Netflix and National Trust are probably 'extravagances' but NT's are great 'free' places to take out LO and we use it frequently, and Netflix is our replacement for going out etc in the evenings. Our boiler is old and on its last legs, therefore the boiler plan is necessary, and though the tumble dryer is new, we've already had to use the service plan 4 times, so worth it I think.

I really appreciate all your help and ideas!

Thanks,

Sasannach

barbaraemmerson · 10 April 2015 at 6:52PM

I am sorry but to say the church donation of £300 a month is non negotiable is crazy................I don't believe there is a church out there that would want you to lose your home. We have in the past paid the bare minimum (all we could afford) to the church but now we are in a much better position financially we have more than made it up to them (we bought our local church an organ last year!) I am positive the church would understand your short term predicament and would think no worse of you for it.

andyfromotley · 10 April 2015 at 7:40PM

Sasannach wrote: »

Thanks everyone. Looks like it was a bad idea then! Good to know these things, and get on with the next step. We were looking at moving and buying somewhere else, but the credit scores scuppered that idea!

So, here goes with the SOA:

Statement of Affairs and Personal Balance Sheet

Household Information
Number of adults in household........... 2
Number of children in household......... 1
Number of cars owned.................... 1

Monthly Income Details
Monthly income after tax................ 1850
Partners monthly income after tax....... 710
Benefits................................ 86
Other income............................ 0
Total monthly income.................... 2646

Monthly Expense Details
Mortgage................................ 300
Secured/HP loan repayments.............. 260.29999999999995 This is for the car i assume? Ditch the car and get a cheap runaround, if you don't have the money to buy one save this payment for the first 4 months and buy one
Rent.................................... 0
Management charge (leasehold property).. 0
Council tax............................. 144
Electricity............................. 40 This (and gas) is high £130 for both. I pay £82 for a four bedroomed victorian house. Use a comparison site to drive it down
Gas..................................... 90
Oil..................................... 0
Water rates............................. 0
Telephone (land line)................... 15 £30 per month for phone and internet is too high! Check the MSE site for the best deals, i pay less than £8 pm for both!!
Mobile phone............................ 80 I guess this is for 2? Too much. Sim only with plenty of minutes/usage for £15 pm or less. Change as soon as your contract allows.
TV Licence.............................. 12.12
Satellite/Cable TV...................... 0
Internet Services....................... 15 see telephone
Groceries etc. ......................... 400 This isn't outrageous but could be cut. check out the thread on here for ideas.
Clothing................................ 40
Petrol/diesel........................... 80
Road tax................................ 3
Car Insurance........................... 40
Car maintenance (including MOT)......... 25
Car parking............................. 0
Other travel............................ 10
Childcare/nursery....................... 0
Other child related expenses............ 50
Medical (prescriptions, dentist etc).... 0 You must use the dentist?
Pet insurance/vet bills................. 0
Buildings insurance..................... 20
Contents insurance...................... 20
Life assurance ......................... 0
Other insurance......................... 0
Presents (birthday, christmas etc)...... 50
Haircuts................................ 5
Entertainment........................... 50
Holiday................................. 100
Emergency fund.......................... 0 You need to have an emergency fund or you will go into debt when an emergency inevitably occurs i suggest £50 per month until you have £1k
Netflix................................. 5.99
Tumble Drier Service Plan............... 3 ditch this
National Trust.......................... 7.9
RCN..................................... 16.4
Boiler Service Plan..................... 17.9
Church.................................. 300 I see your notes and respect that. Could you reduce it a little, temporarily until you have paid your debt. Say £50 per month, even if you give a little more when you are debt free
Total monthly expenses.................. 2200.61

Assets
Cash.................................... 0
House value (Gross)..................... 95000
Shares and bonds........................ 0
Car(s).................................. 13000
Other assets............................ 0
Total Assets............................ 108000

Secured & HP Debts
Description....................Debt......Monthly...APR
Mortgage...................... 51000....(300)......3.43
Hire Purchase (HP) debt ...... 10500....(260.3)....0
Total secured & HP debts...... 61500.....-.........-

Unsecured Debts
Description....................Debt......Monthly...APR
Overdraft......................2000......30........1.5
Overdraft......................2000......30........1.5
Overdraft......................1500......30........2
Credit Card....................2777.89...64........1.5
Total unsecured debts..........8277.89...154.......-

Monthly Budget Summary
Total monthly income.................... 2,646
Expenses (including HP & secured debts). 2,200.61
Available for debt repayments........... 445.39
Monthly UNsecured debt repayments....... 154
Amount left after debt repayments....... 291.39

Personal Balance Sheet Summary
Total assets (things you own)........... 108,000
Total HP & Secured debt................. -61,500
Total Unsecured debt.................... -8,277.89
Net Assets.............................. 38,222.11

Our mobile contracts are high, and are a result of foolish impulsivity when the iPhone 6 came out, so not a lot we can do about that now (I don't think?). The church money is non-negotiable tithing. Netflix and National Trust are probably 'extravagances' but NT's are great 'free' places to take out LO and we use it frequently, and Netflix is our replacement for going out etc in the evenings. Our boiler is old and on its last legs, therefore the boiler plan is necessary, and though the tumble dryer is new, we've already had to use the service plan 4 times, so worth it I think.

I really appreciate all your help and ideas!

Thanks,

Sasannach

Hi, I've been through your SOA and added some notes. The notes i have made are not the nuclear option, just reasonable cuts to make. If you do the ones i have listed you will be in the order of £350 per month better off. Thats over £4000 per year EXTRA to pay off your debts.
I understand the car will be difficult, and you will be able to come up with a thousand reasons why you need to keep it. But you don't, its the single biggest thing you can do to improve your financial situation (apart from stop tithing which i understand you don't wish to do)
I have suggested increases in a couple of areas.

This is the easy road to debt repayment, if you wanted there is also a hard road which would see you cut your spending to the absolute minimum, this would involve getting rid of holidays, entertainment, netfilx, reducing groceries by maybe 50%!! etc etc. It's not for everyone (me included) but i mention it so you see you have options if you really go for it.

The good new is that your situation is easily solvable. make a plan, stick to it and you will be sorted. Good luck.

Vikipollard · 10 April 2015 at 7:45PM

Groceries 400 - this is huge for 2 adults and a tot. Go over to the old style board for ideas on cheaper eating

Gas 90 - this seems a lot, especially with electricity 40. We are in an old, north-facing, expensive to heat house, but ours is 60 for both (and that is still possibly on the high side!)

Clothing 40 - every month?

Holiday 100 - but you have nothing in Emergency fund?

Presents 50 - perhaps cut back here? Your LO will not mind

Church 300 - not sure how this works? How are you tied in to paying this?

Sasannach · 10 April 2015 at 8:44PM

Thanks again everyone.

Barbaraemmerson - it's not the church enforcing it on us at all, but is something we believe strongly in. We'll maybe look at reducing it a little though.

andyfrommotley - thanks for your comments. We're going to have a look at what we will do with the car. It seems like an obvious solution really, but just one we hadn't really allowed ourselves to think about properly before. It would be VERY difficult to live without a car, as our families live at opposite ends of the country to each other and are a 7 hour journey away from us in opposite directions, but if we could get a decent run around that could cover the miles, then that would be fine. Will start working on emergency fund from next month. Also - v intrigued (and amazed) about how you managed to wipe out £11k in one month?!

Gas and electricity wise, we have recently move supplier and it will hopefully work out cheaper, but trying to be cautious as got stung with underpayments with our last supplier.

Vickipollard - Groceries - £400 is my initial reduction in grocery shopping and working at getting it down further every month. Gas and electricity - see above. Clothing - it probably works out a lot cheaper than £40 a month, but trying to look at it on a yearly basis for all three of us. Children's shoes aren't cheap - even though I buy them at an outlet store. Holiday fund isn't actually a holiday fund so much as a 'visit the parents' fund and includes diesel and ferry costs spread over the year. That works out to two visits to each set of respective parents per year. Presents aren't for LO, but budgeting for our families birthdays and xmas presents.

Thanks again.

Am I being unreasonable to think this could be a solution?

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